Sectional Title needs a different approach to home ownership, says Standard Bank

Other people have a say about how you manage your property

Buying a house in a complex or a flat often seems to be a more affordable home ownership option than a free-standing house. For one thing, sectional title can give you access to property in the area of your choice that would otherwise be too expensive to buy outright. And, being part of a like-minded community of home owners is a huge draw card. However, sectional title home ownership is also quite complicated. If you don’t do your homework, you could end up losing money.

When you buy a section of a property, it means you acquire access to an undivided share of a common property. The two together are known as a unit. All the owners collectively own everything that is not part of a specific section.

“What people don’t realise is that sectional title is a form of joint ownership,” says Steven Barker, head of home loans at Standard Bank. All owners pay a monthly levy, separate from the purchase price for their unit, which covers things like municipal services, insurance, and maintenance. Some schemes have a levy stabilisation fund that is topped up with a portion of the profit that owners make when they sell their unit. The fund prevents the monthly levies becoming too onerous.

“Joint ownership means having to collaborate closely with other people to ensure that your property is properly maintained and insured, and that the body corporate, trustees or managing agents are appropriately overseeing the  administration and control of levies and other collective funds,” Mr Barker says.

He points out that with a freestanding house, you can make decisions about your home without having to consult other people about their opinions or rights. You could paint the outside walls purple if you wanted to. In a sectional title situation, you automatically become one member of a larger group of people, all of whom have a say about how the overall property will be managed. It takes a lot of patience and networking to negotiate changes. And, if the joint management process doesn’t work properly, the value of your property could be eroded and you could end up paying more on a monthly basis than you expected.

“Find out as much as you can about the property and the people managing or administering it before you sign any offer to purchase,” says Mr Barker. “If you’re applying for a bond to buy the sectional title, then your bank will also want to know about the financial viability of the scheme.”

The first thing to do is make sure you understand the obligations of an owner of property under the Sectional Title Act 95 of 1986, which prescribes management and conduct rules that apply to all sectional title schemes and covers the laid down framework for running such a scheme. While the Act does allow some rules to be changed, providing they don’t go against the spirit of the Act, the procedures to effect these changes are also prescribed in the Act and must be carefully followed.

Then get a copy of the management and conduct rules of the sectional title scheme you’re interested in, and ensure that you understand what you can and cannot do within that property. For example, many schemes prohibit pets. Most are prescriptive about the outside appearance of the buildings and will not allow you to use a different type of brick or fencing from everyone else.

“Buyers must also be aware of the type of sectional title scheme they’re planning to join. One type relates to existing buildings that are in the process of being converted to sectional title. Another relates to properties that have already been converted to sectional title or were built as sectional title schemes from the outset. And some schemes are planned but not yet built,” says Mr Barker.

In the first scheme, where buildings are being converted to sectional title, ask questions about:

Wear and tear on existing infrastructure. This affects the value of the property with probable higher maintenance costs.

• Monies owed by the developer to third parties. This could end up costing you money.
• Whether the building is part of a phased development and, if so, what the extension period is. You might end up living indefinitely with the noise, disruption, and crime potential of a building site.
• What tenant rights are, such as the right of first refusal when selling.

In an existing sectional title scheme, make sure you get answers to questions about:

The state of the financial statements. Find out whether the Body Corporate is in financial distress. Is it under administration? Have corporate assets been mortgaged?

• The amount of the monthly levies and what they cover.
• What the consequences would be if you defaulted on your levy.
• Whether the current insured value of your property is sufficient and whether the body corporate carries fidelity insurance that covers the misappropriation of funds.
• Whether the section you’re buying has been structurally altered and, if so, were the alterations done in accordance with the scheme’s constitution and conduct rules.
• Whether the scheme is managed by a home owners association, body corporate (trustees), or by an appointed managing agent.
• The circumstances under which you could make improvements to the property and whose approval you would need.
• What your responsibilities are as a member of the body corporate.
• What dispute resolution process is in place.

When a proposed sectional title scheme has not yet been built, ask the following questions:

Is there one unit already built that you can see, or will you be buying based on a site plan only?

• How likely is it that the levies suggested at this stage will change once the body corporate is established? This prevents you paying more than you have budgeted for.
• What demand is there for this particular scheme? This gives you an idea of how easily you’ll be able to sell your section.
• How solvent is the developer? This will tell you how likely you are to lose your deposit.
• When will building start? You could end up waiting for years for building to start, and your deposit would be tied up.

It’s important to note that, as an owner, you have clear and specific rights to:

• Attend, speak and vote at annual general meetings.
• Question the appointed trustee’s decisions, as the trustees cannot makes decisions in isolation.
• Participate actively in the financial and administrative management of the scheme.